performance management

A month ago, Steve Ballmer announced he would be stepping down as CEO of Microsoft within a year. This led to a flurry of commentary about why he’s leaving and what this means for the company. Many cited an article in Vanity Fair to detail what went wrong. I wrote about this article and Microsoft in a section of my book about forced ranking systems for performance management. Here is an edited excerpt of what I wrote:

A classic expression of fear-based culture is employee performance management, particularly the type that ranks people against each other. GE has used such a system for years and done quite well as a company. However, it’s not clear whether their success is because or in spite of forced ranking. If you work at GE, your manager places you in one of three categories: high performer (the top 20%), middle performer (the middle 70%), or low performer (the bottom 10%). If you’re a low performer, you get removed or improved. Sounds like meritocracy at its best, right? Not really. As USC management professor, John Boudreau, points out:

Is removing or improving the bottom 10 percent valuable in all cases? Certainly in some situations even the bottom 10 percent are doing an adequate job and are doing better than those who could be hired or promoted. By definition, continually removing or improving the bottom 10 percent will make the bottom 10 percent more similar to the middle 70 percent and thus make removing the bottom 10 percent less effective in improving workforce quality.

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